Innovative Risk Transfer Solutions

ITS ALL IN THE ARTUsing
Barbados Segregated Cell Accounts
and Segregated Cell Companies
Reasons to Consider ART Solutions
Increasingly complex risks and a hard
market have meant that conventional
risk transfer products cannot always
provide adequate cover. This has led to
considerable growth in the use of
alternative risk transfer (ART) solutions.
Where feasible, ART solutions should
be an essential part of a company's
overall strategy for risk management.
They should also be seen as a method
of funding for and management of a
company’s risk. ART Solutions can help
to finance conventional risk exposures
in an alternative manner, or finance
conventionally uninsurable risk
exposures using an insurance
mechanism.
New Legislation
In 2001, Barbados introduced both
segregated accounts and segregated
cells legislation as amendments to its
Companies Act of Barbados, Cap. 308.
Unless stated otherwise, the provisions
of the Barbados Companies Act apply to
both segregated cells and segregated
accounts. Segregated cells do not have
legal personality independent of the
Segregated Cell Company.
There is significant potential for longterm
savings through risk management
and loss control. A captive program, for
instance, that is performance-driven,
with potential for profit return can
consider Barbados Segregated Cell
Accounts or forming a Segregated Cell
Company as part of their ART solutions.
Dramatic rate swings in the traditional
insurance marketplace can be avoided
by creating a stable, predictable,
efficient program. Loss fund dollars can
be invested for additional income with
insurance for catastrophic loss
purchased. The international business
community has already accepted the
concept of segregated cells for
insurance risk management as well as
for non-insurance purposes.
Barbados Segregated Accounts
Separate accounts may be established
only for insurance business. The
designation, restrictions, conditions and
rights attaching to each separate
account must be specified in its articles.
The assets of the company are
segregated into separate accounts that
are kept separate from the general
assets of the company.
These “assets of a separate account”
include, the specific assets credited to
the respective separate account, all
income, interest, gains, expenses and
losses incurred or earned, in respect of
the company’s dealing with the assets
that are allocated to the separate
account. All this, in accordance with the
terms of the contract that relate to the
establishment of the separate account.
A company that has established a
separate account may invest and deal
with the assets of a separate account in
accordance with the terms of the
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relevant contract. Separate books of
record are also kept for each separate
account.
Barbados Segregated Cell
Companies
Segregated Cell Companies (SCCs) are
‘protected cell’ companies, also known
as ‘sponsored captive insurance
companies’ in some industry circles, in
which the assets and liabilities of each
participant are segregated in a separate
cell. No participant’s liabilities can affect
the other participants’ assets. SCCs can
do insurance business as well as other
types of non-insurance business.
It is stated expressly in the legislation
that notwithstanding the fact that a
segregated cell company may create
one or more cells, the company is still a
single legal entity and further that a cell
is not a single legal person.
Segregated cell captives are growing
especially rapidly because it's easier
and cheaper to add a cell to an existing
cell captive than to launch an entirely
new captive from scratch.
Barbados Segregated Cell Companies
can be formed in one of the following
ways:
(i) A company that is incorporated as a
segregated cell company
(ii) An existing company that is
converted to a segregated cell company
(iii) An external company which can be
either
(a) registered as a cell company in
Barbados or
(b) continued as a cell company
in Barbados.
Segregated-cell captives also can be
owned by a single parent that has
elected to place different risks into
different cells, or owned by a group
captive that has separated its individual
members' risks into different cells.
The Companies Act also provides that
the recourse available to a creditor of a
segregated cell is limited to the assets
of that cell, and similarly that a creditor
of a SCC itself is limited to that asset of
the SCC, and not any of its cells but
does provide for non-cellular assets of
the cell company to be exposed upon
the deficiency of the cell. It should be
noted that no Barbados court has
considered the insolvency issues of
segregated cells nor has this issue been
addressed in most of the other
international business jurisdictions as
yet.
Innovative Uses due to Flexibilty
• Captive/ insurance business asset
pools
• Mutual Funds
• Multi-series Securitisation
• Investment Funds
• Family Office
With structure flexibility there are
innovative ways to use these cellular
structures. Mutual funds and insurance
business asset pools, could use this
type of structure as it is well suited to
highly geared funds using higher levels
of debt or through trading on margin in
derivative contracts and even as issuing
vehicles in multi-series securitisation
programmes in respect of separate
pools of assets.
For insurance structures, no cell would
want to write a line of business which it
could not foresee being able to cover
and which it would have concerns over,
with possible consequences of wrongful
trading being an issue. With an
incorporated segregated cell company,
however, the emergence of claims
against one specific cell or line of
business should have no impact upon
the continuing ability of the other cells or
the cell company to continue to run their
own businesses unaffected by the
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problem cell and to continue to write
new business.
Banking, investment, fiduciary and
insurance businesses require a licence
in Barbados to be lawfully conducted.
This does not limit in any way the
existing insurance uses for captive and
reinsurance business, but opens up the
use of Barbados SCCs as a wealth
management structure for example,
family offices wishing to facilitate the
holding of assets, asset pools or
businesses.
Why Barbados?
• A positive image in the market
place
• An excellent reputation in
international business industry
• A well educated population
• Good business infrastructure
and competent, skilled service
providers
• Social, political and economic
stability
• Well regulated environment;
prudent regulatory authorities
• A diverse network of double
taxation and bilateral investment
treaties
• Extensive international business
legislation
Dawn A. Williams LL.B., M.B.A. is an Attorney-at-law and can be contacted by